Billionaire investor Warren Buffett, head of Berkshire Hathaway (NYSE:BRK.B) since 1965, has achieved sky-high returns.

Between 1965 and 2023, the S&P 500 index gained 31,223% including dividends. An index tracker fund held for that long, had they existed at the time, would have wiped the floor with cash savings.

But then along comes Berkshire Hathaway, whose share price soared by an enormous 4,384,748% over the same period.

Follow the leader

I can’t match the investing power that plays a large part in Warren Buffett’s strategy today. And I mainly want to buy and hold UK dividend stocks. So I wouldn’t buy the same stocks as those held by Berkshire Hathaway.

But what I can do is use Buffett’s sector and diversification choices to help guide me.

I do worry a bit about my over-concentration on sectors that I see as cheap. For the past decade or so, that’s been banking and finance, including the insurance sector and investment firms themselves.

But though I’ve held, for example, Lloyds Banking Group and Aviva for a few years now, I’m down on both of them. Well, actually, I’m getting decent dividends and I’m not looking to sell, so the share prices themselves don’t matter too much right now.

Concentrated

Going into 2025, these sectors still feature high on my wants list. I like the look of Legal & General. And I’m also eyeing up Barclays with a thought of getting into global corporate and investment banking.

But I’m also wary of over-concentrating my investments.

A look at Berkshire Hathaway’s top 10 holdings is telling. Buffett has always understood the finance sector better than most. And today, four of his biggest 10 are finance-related stocks, accounting for 37% of Berkshire’s total holdings.

Those four are American Express, Bank of America, Moody’s and Chubb.

What you know

Looking at Warren Buffett’s stock picks pits two of my key investing axioms against each other.

One is that diversification thing, which I see as essential. I wouldn’t have wanted even more of my cash in finance when the great banking crash happened.

But then, what about the old ‘But what you know’ maxim? It can be quite a danger investing in something we don’t understand.

Buffett himself kept away from tech stocks for a very long time, because he didn’t understand them. He’s learned enough since then, mind, for Apple to become Berkshire’s biggest holding today.

Dilemma

Still, there are plenty of stocks that I really don’t think I understand well enough to buy. So I still face my dilemma. I think I have insufficient diversification, but I only want to buy what I know.

So what do I really take from Warren Buffett and Berkshire Hathaway as we head into 2025?

Firstly, I’m reassured that I shouldn’t fear investing in the sectors and companies that I understand and like the best.

But it’s never too late to learn. And I need to devote time in 2025 to beefing up my knowledge of more businesses. Now, what’s this artificial intelligence thing all about?